March 28, 2018

The NSW Court of Appeal has clarified, in its recent decision of Ipstar Australia Pty Ltd v APS Satellite Pty Ltd [2018] NSWCA 15, the considerations which may give rise to a finding of unconscionable conduct under the Australian Consumer Law (ACL).

Ipstar Pty Ltd (Ipstar) was a wholesaler of satellite broadband services – supplying bandwidth to customers who required a proprietary user terminal (UT) to connect to the satellite. APS Satellite Australia Pty Ltd (APS) purchased bandwidth and UT’s from Ipstar and then sold both a UT and an internet connection to end users. Numerous connection complaints in relation to faults in the UTs were made by the end users, indicating the UTs supplied by Ipstar were defective. APS claimed an entitlement to be indemnified by Ipstar as a result of a breach of statutory warranties as to fitness and quality under the Trade Practices Act 1974 (Cth) (now the ACL).

Ipstar refused APS’ claims for indemnity, notwithstanding that it considered some of those claims to be valid. Simultaneously, Ipstar was in the process of renegotiating the price of bandwidth with APS. Ipstar’s final offer to APS represented a 15% increase to the existing rate. When making such offer, Ipstar did not advise APS that the 15% increase was calculated in light of, and accommodated, the indemnity claims made by APS. No payment was made in relation to these claims.

APS brought an action in the Supreme Court of New South Wales claiming (amongst other things) that Ipstar had engaged in unconscionable conduct under section 22 of the ACL. The judge at first instance found that Ipstar had engaged in unconscionable conduct in relation to the price increase. Ipstar appealed the decision.

In upholding the finding that Ipstar had acted unconscionably, the NSW Court of Appeal stated that:

  1. Whether conduct is unconscionable involves a consideration of all the circumstances to conclude whether the conduct in question falls below acceptable norms, standards or values such as to warrant it being determined unconscionable.

  2. Whether conduct is unconscionable does not involve an idiosyncratic determination of what is "fair" and "just" in a particular case.

  3. Neither a disparity in bargaining power, nor a party’s use of that superior bargaining power to achieve its legitimate commercial interests, necessarily mean that conduct is unconscionable.

  4. In all of the circumstances Ipstar’s conduct was unconscionable because it had imposed a price increase based on an estimated accrued liability, whilst taking steps to avoid payment of that liability, despite considering some of those claims to be valid and seeking to conceal the reason for the price increase.

The decision is a useful reminder that while parties are able to take advantage of their commercial position when negotiating agreements, they must act within the required standards of conduct.

The full decision can be found here.

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